COMMENT: A few weeks ago I wrote an article which pointed out that we should be wary about blindly accepting the opinions of those we see as “authority” figures on the property market and that we should, instead, conduct our own research based on facts, not opinions.
It’s a warning which is even more true of those commentators who go beyond simply expressing opinions and formalise them as “predictions” because, if you get these wrong, they will haunt you for years to come. This happened to all commentators in late 2019 (myself included) when our predictions for the year ahead couldn’t possibly have anticipated a global pandemic which would render all normal commentary moot. This was excusable under the circumstances and it would probably have been a good time to stop making predictions and waiting to see what would happen – but some, particularly the “big four” banks, unwisely ventured in again during the early stages of the pandemic and predicted that house prices would fall by anything between 5% and 15%.
Instead, house prices surged – increasing by more in one year than during any similar period in our history – which should make you extremely wary of accepting the latest claim, by ASB Bank, that house prices will fall in 2022. If they do, based on their previous track record, I’d be inclined to see the predictions of ASB, and other Banks, as good luck rather than good forecasting.
Which is why only the foolhardy and the very brave make such predictions about what will happen to the housing market in the year ahead. In any suite of predictions, the chances of one or more being wrong is very high, potentially overshadowing the other “correct ones”.
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Ashley Church: “Only the foolhardy and the very brave make such predictions about what will happen to the housing market in the year ahead.” Photo / Ted Baghurst
Despite this, I ignore my own advice each year and issue a set of annual market predictions for precisely the same reason that the banks do – getting it right dramatically enhances ones bona fides. In my own case, (and putting aside my 2019 predictions for 2020) my accuracy rate over five years, is in the mid-nineties, which adds credibility to my other commentary throughout the year.
So how did I do in my predictions for 2021, which I issued back in January? Judge for yourself:
Prediction 1: House prices will keep going up throughout the year.
As I mentioned earlier in this article, house prices throughout most of 2021 continued the strong surge which started in 2020 and increased by more in one 12-month period than during any similar period in our history. Enough said.
Prediction 2: The LVR settings will be reintroduced
In this prediction I suggested that, despite making absolutely no difference to house price inflation or market stability, the Reserve Bank would re-introduce the failed Loan-to-Value ratio lending restrictions and would probably increase the minimum deposit required from investors back to 40%. Sadly, both parts of this prediction proved to be correct (I’d have loved to have been wrong on this one) and the result has been to further compound the already substantial obstacle to buying a first home for young Kiwis.
Prediction 3: Mortgage interest rates will stay low
At the beginning of 2021 there were suggestions, from some quarters, that mortgage interest rates would increase because the post-covid lockdown economic recovery had been much stronger than expected. Despite this, I was of the view that the countervailing forces which would justify raising interest rates (strong global growth and/or high inflation) were absent and that rates would stay low. That’s exactly what happened. Rates stayed low for almost all of 2021, as predicted and are only now starting to increase in response to particularly high inflation.
Prediction 4: The Bright Line test will increase to 10 years
It did. Despite there being no rational justification for doing so, the Government increased the time in which this disguised capital gains tax could be applied from five years to ten years.
Prediction 5: There will be no further major rental market reforms
This was correct. After three years in which major changes were made to the rules affecting tenancies there were no further reforms to the rental market.
Prediction 6: Help for first home buyers?
In this prediction I suggested that I would like to see a suite of announcements for initiatives to support first home buyers during 2021 – either as one package or as a series of measures. However, I put a caveat on this by saying that I didn’t have confidence in the Government’s ability to do it given their failure in other areas of the property market. Sadly, that caveat has proven to be accurate and there have been no new initiatives.
Keep an eye out, in January, for my predictions for 2022.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
